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Seagate reported revenues of $3.53 billion in the third quarter of 2013, down 20.8% from $4.45 billion in the year-ago period. The Hard Disk Drive (HDD) industry continues to witness a lack of consistent visibility due to weak customer response globally.

This has curbed Seagate’s ability to generate meaningful growth. In order to counter these adverse effects, the company is adopting strategies like new product introduction, market segmentation to facilitate its business performance.

Operating Results

Gross profit was $948.0 million, down from $1.64 billion in the prior-year quarter. Gross margin was 26.9% versus 36.9% in the prior-year quarter. The decline in gross margin was primarily due to an adverse effect on pricing as well as due to some cost related factors.

Operating margin in the quarter also moved down 13.2% year over year from 27.2% reported in the year-ago quarter.

On a GAAP basis, net income was $416.0 million or $1.13 per share, compared with $1146.0 million or $2.48 per share in the comparable quarter last year. Excluding the impact of one-time items, adjusted net income was $464.0 million or $1.26 per share.

Balance Sheet, Cash Flow

Cash and cash equivalents were approximately $1.90 billion at the end of the quarter versus $1.87 billion in the previous quarter. Accounts receivables decreased to $1.56 billion from $1.65 billion in the prior quarter. Seagate’s long-term debt stood at $2.47 billion.

Seagate generated $678 million from operating activities, up from $844.0 million in the previous quarter. In the reported quarter, the company has returned $381 million to shareholders through dividends.

Guidance

For the fourth quarter, Revenue is expected to be in the range of $3.3 billion to $3.45 billion, non-GAAP operating expenses to remain relatively flat.

Our Take

Seagate reported mixed third-quarter results, with revenue decreasing substantially and EPS exceeding our expectation. The lack of visibility in the HDD industry is also a concern for the company.

Despite the ongoing cost control measures, the company has not been able to support its margins. Moreover, Seagate is coming up with new products to cater to new customers and penetrate new markets with customized products. Seagate also has a significant exposure to high-end corporate desktop and enterprise server markets, compared with its rival Western Digital Corp. (WDC - Free Report) .

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